BOLSTERED by improving sales and better margins, profits for China’s industrial companies rose in May, bucking a months-long downtrend.

But analysts are unsure if the modest gains can last. China’s industrial profits have been faltering for over a year as the economy slows and the U.S.-Sino trade spat escalates, weighing on manufacturing investment and output.

Profits rose 1.1 percent in May from a year earlier to 565.6 billion yuan (US$82.21 billion), according to data released by the National Bureau of Statistics (NBS) on Thursday, following a 3.7 percent fall in April.

In the first five months, industrial firms earned profits of 2.38 trillion yuan, down 2.3 percent from a year earlier, compared with a 3.4 percent drop in the January-April period.

The uptick in May was driven by quicker sales and slower increases in corporate costs, Zhu Hong of the statistics bureau said in a statement accompanying the data, adding that better margins in equipment manufacturing and the coal sector attributed to the bulk of the increase.

Moreover, profits in high-tech manufacturing and emerging industries both turned positive in May after declining the month before.

“The modest pick-up in high-tech industry might suggest the effect of value-added tax (VAT) cuts is kicking in,” said Lu Ting, chief China economist at Nomura.

Lu noted, however, that the rebound was still relatively weak and was likely to be short-lived as the trade spat drags on.

While China’s overall tech industry profits rose last month, earnings for telecommunications and electronic equipment manufacturers, which are more vulnerable to U.S. tariffs than other product classes, declined 13 percent in the January-May period.

Producer price inflation, one gauge of industrial profitability, has been easing since early 2017. It slowed to 0.6 percent in May, while industrial output growth unexpectedly cooled to a 17-year low of 5 percent.

To support the economy and spur domestic demand, policymakers have stepped up approvals for big infrastructure projects, freed up more funds for lending and cut taxes. The People’s Bank of China has slashed banks’ reserve requirement ratios six times since early 2018, with further cuts expected in coming months.

The biggest share of profits was still dominated by upstream sectors in the January-May period.

(SD-Agencies)